Estate Tax Increase Jeopardizes Future of Family Farms

Congress is
now convened in a lame duck session, dealing with a host of issues that were postponed
or bypassed in regular order earlier this year.
The farm bill is one of them. So is
essentially two years’ worth of federal budgeting. This perpetual postponement comes at a steep price.

Congress’s
failure to reach a $1.2 trillion deficit-reduction package last year leaves in
place the automatic across-the-board spending cuts known as a sequester. Those cuts, like the sword of Damocles, hang
over all federal programs – good and bad alike – unless Congress can devise a more sensible budget
plan that funds priority programs and weeds out unnecessary and wasteful
spending. Total cuts to federal spending
in 2013 would be $110 billion.

Moreover, a
number of tax provisions expire at the end of this year. These expiring tax provisions are largely the
culmination of temporary tax and budget bills that have deferred rather than
dealt with policy differences. The tax
bill on January 1, 2013 will be $514 billion higher because of these expiring
provisions.

Taken
together, the sequester and the expiring tax provisions, result in a fiscal
cliff of more than $600 billion. The
Congressional Budget office predicts that our nation’s economy could not
withstand such a fall. Going over the
cliff would leave our economy in recession.

There are
likely to be lasting consequences, especially for our nation’s farm families. One of the tax provisions to be implemented
in 2013 is a stiffer estate tax, or “death tax,” as it has come to be
known. Few taxes are more
unpopular. A 2009 Tax Foundation poll found that most taxpayers
consider the estate tax the most unfair of all federal taxes.

If Congress
does not steer our
economy away from the fiscal cliff, estate tax rates would increase to 55
percent from the current 35 percent, and the exclusion would decrease from $5
million down to $1 million. This
jeopardizes many family farms.

Consider
the nature of farming and ranching. It
is a capital-intensive business that is relatively low margin with illiquid
assets such as land and barns. A USDA 2010 economic survey
revealed that 88 percent of all farm assets were illiquid. Moreover, most farms and ranches are family
owned, and thus subject to estate taxes.

Family
farms and ranches are not only small businesses. Family farmers are also the caretakers of one of
our nation’s most important natural resources – farmland, soil and the capacity to grow food, fiber and
fuel. Excessive estate tax bills
almost assure the break-up of multi-generational
family farms, and the eventual
loss of valuable farmland to development.

If Congress
allows the estate tax to
increase as scheduled, it could cost America’s farmers and ranchers more than
$3 billion in 2013 alone. Over the long term, it will cost many farmers their livelihoods, too.

The preferable
policy options from American Farmland Trust’s point of view would be for estate
taxes to exempt farms remaining in agricultural production or to exclude any
development potential in appraising the land’s value if the land is intended to
stay in agricultural production. That way, the estate would be taxed based only on the production
value it holds – a more fair measure, and a much sounder conservation policy.

At the
minimum, maintaining the
current estate tax rate of 35 percent with an exclusion of $5 million is
essential. That is the message that
American Farmland Trust recently delivered to Congress in concert with 35 other
groups on behalf of American agriculture via a letter to each and every Member
of Congress. At stake is the protection
of America’s family farmers and ranchers and preserving the land that feeds and
clothes the world.

About the author: Jon Scholl
became the President of American Farmland Trust in July 2008, after serving as Counselor
to the Administrator for Agricultural Policy at the U.S. Environmental
Protection Agency (U.S. EPA) since 2004. Prior to that, Scholl served the
Illinois Farm Bureau for 25 years. He is
a partner in a family farm in McLean County, Illinois.

This week’s guest on Open Mic is Rod Hebrink, President and CEO of Compeer Financial. The lack of certainty from a new farm bill and weak commodity prices due to lost export markets and robust supplies have left farmers and lenders with a grim outlook for 2019. In this interview, Hebrink discusses the challenge of the unknown and the need for legislators and the White House to take action on farm policy, trade and regulations to help rural America prepare for the year ahead.

The world of agriculture extends beyond what’s growing in your field or living in your barn, and here at Agri-Pulse, we understand that. We make it our duty to inform you of the most up-to-date agricultural and rural policy decisions being made in Washington D.C. and examine how they will affect you – the farmer, the lobbyist, the government employee, the educator, the consultant and the concerned citizen.